The House of Lords has removed an amendment to legislation that would have written down the total amount owed by customers on certain debts sold by banks to debt purchasers.
The lords recently debated an amendment, tabled by former Green Party leader baroness Natalie Bennett, to the Financial Services Bill. It focused largely on the new statutory debt repayment plan.
The amendment called for a "fair debt write-down" of debts that have been sold on, particularly those which are appearing in statutory debt repayment plans. The amendment would have made it a requirement for debts sold by banks to be written down to a reasonable level, by the purchaser or investor.
The text of the amendment itself stated that any debt appearing in a repayment plan, that has been sold either prior to the plan starting or while it’s still running, should be subject to "what is to be known as a fair write down."
The amendment went on to state that "the level of the fair debt write-down must be calculated by the amount paid by the debt purchasing company for the debt plus no more than 20% of the value of the debt."
However, many House of Lords members explained why the amendment was unworkable during a debate earlier this month. Lord True said it would "require regulations" to include a provision that would mean debts that have been sold by one creditor to another, are subject to a fair debt write-down, when those debts are included within an individual’s statutory debt repayment plan (SDRP).
Lord True also explained that the amendment would apply only to debts which have been sold on, and not to other debts. He added: “The government does not agree that it is necessary or desirable to treat these debts (which have been sold), or the people who owe them, differently from other debts... which have not been sold.”
Lord Tunniclife said a better understanding of the impact on customers in severe financial difficulty, whose debts have been sold, is needed. He also said parliament needed a better understanding of how they can make sure "the excesses of those who hold the books are restrained."
During the debate, Baroness Kramer made the point that debt sale "is a perfectly standard process and provides liquidity to the market”.
Acknowledging in the house that the amendment couldn’t be taken forward, baroness Bennett said: “For the moment, I beg leave to withdraw the amendment, but I reserve the right to consider bringing it back.”
According to the Centre for Responsible Credit, the fair debt write-down could have reduced the collection rate and therefore depress the price for non-performing loans (NPLs) on the secondary debt market.